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For millions of Americans, retirement planning is all about accumulating a “nest egg” of savings and investments to generate enough income to pay for a comfortable standard of living after they stop working. The quality of life in your golden years, this line of thinking goes, is determined almost solely by how well you’ve estimated the size of the nest egg you need and how close you get to accumulating it.

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But this process, especially as applied by the trillion-dollar financial services industry that many would-be retirees turn to, often raises more questions than it answers — some of which are unknowable. How long will you live? Will stocks and bonds perform as well in the next 25 years as they have in the last 25? And what happens if your retirement coincides with a period of high inflation that takes a big bite out of the spending power of your hard-earned nest egg?

Some contrarians believe that the conventional wisdom — by focusing so heavily on savings and paying less attention to spending patterns in retirement — may cause some people to save more than they really need to.

In some cases, balancing savings and spending means rethinking retirement goals. Because living costs vary so widely from one part of the country to another, for example, many retirees find themselves cutting costs by moving from high-cost locales to more affordable neighborhoods.

Rebecca Hale, 58, of Tucson, Ariz., is an example. Hale, who is single, says family obligations kept her from stashing savings in her 401(k) until late in life. So she’s counting on pensions, Social Security and the sale of her home to top off her nest egg. She’s set her retirement sights on moving south of the border.

Retirement calculator“I kind of calculated that I wouldn’t have enough to retire in the U.S., and I’ve always been fond of Latin countries,” she said. “I figure that for $4,000 a month I can live like a queen in Mexico.

But you don't have to move to another country to match your spending goals with your retirement savings.

“The traditional methodology is giving very bad advice,” said Lawrence Kotlikoff, an economics professor at Boston University. “The targeting for how much to plan on spending in retirement is being done by people that are trying to sell securities and insurance policies. That right there is a conflict of interest.”

Kotlikoff, who has developed his own methodology (more on that later), argues that for some people, the typical method of shooting for a fixed minimum income for life creates a savings target that is higher than it needs to be. But that suits the financial services industry just fine, he says.

“I’m not suggesting that everyone is oversaving or that we don’t have a saving problem with a lot of the population. We do,” he said. “We also have an oversaving problem with a lot of the population. They’re different people.”

The lucrative business of advising individuals on retirement planning is a relatively new one. Just a generation ago, most workers relied on an old-fashioned “defined benefit” pension plan that promised to pay a monthly check for life after they reach a certain age. Income from savings and investments might pay for “extras” — like a cruise or gifts for the grandchildren — but weren’t needed to cover basic living expenses.

But the pool of people who can expect to retire with a guaranteed monthly check from their employer is rapidly shrinking, an artifact of a bygone era. In 1979, nearly two out of every three U.S. workers participated in a defined benefit plan; by 2005 that number had fallen to one in 10.

Pensions have been largely replaced by “defined contribution” retirement savings plans that rely on employees diverting part of their paychecks, with employers kicking in some matching funds. Participation in these plans has risen from 16 percent of the work force in 1979 to about two-thirds as of 2005.

As a result, the financial risk — of setting aside enough money and investing those funds to produce a reliable income in the future — has been shifted from employer to individual employees. If it feels like you’re on your own, you are.

To encourage you to get started, the financial services industry has tried to keep retirement planning simple. The typical process starts with an estimate of how much income you’ll need to maintain a “comfortable” standard of living. Most retirement plans rely on what’s known as a “replacement” model — enough to replace 80 percent or more of your income before retirement.

You're then asked to decide how long you expect to live and try to guess how well your investments will do and how high inflation will be after you retire. Plug those numbers into one of many available calculators, and out pops a number — usually a very big number.

That represents the nest egg you need to accumulate by retirement age to generate the annual income you desire. After taking into account how much you have already saved and invested, along with the number of years left before you retire, you’re then instructed how much you need to save each month to reach your target. That's your retirement plan. (For one version of this approach, check out
our own retirement calculator
.)

But your plan is only as good as three critical assumptions that you have been asked to make: How long you will live; how much you’ll earn on your investments in up and down markets over your lifetime; and your armchair inflation forecast for the next several decades. Even the most gifted economists and financial analysts acknowledge these variables are all but unknowable.

For many prospective retirees, in fact, it’s hard enough predicting what retired life will look like. A generation ago, choices were fairly limited, according to Ron Manheimer, director of the
North Carolina Center for Creative Retirement, which runs workshops for people making the transition to retirement. Some people continued to work as long as they were able, whether because they had to or needed to. Others stopped work and filled their days with leisure, travel or lifelong hobbies.

“I think what’s happened is that we are now in a time when for many people that sort of black-and-white or static picture is gone,” Manheimer said. “People are exploring different combinations and different degrees of continued work, leisure and volunteering and so on. And that becomes more complicated and more difficult to predict.”

That uncertainty about the course of your retired life — never mind your forecasts for inflation, investment returns, and your own longevity — leads some people to throw up their hands at the idea of realistic planning. Others wind up making assumptions that may be overly conservative, says Kotlikoff, creating nest egg targets that may be bigger than needed.

No matter how modest the target, some people — especially younger workers supporting families — say they can’t afford to fund it. At least not now. But the situation for late-in-life savers isn’t hopeless — far from it, says Kotlikoff. His research suggests that most people don’t start saving for retirement until their late 40s — especially if they’re focused on things like raising kids, buying a house in a neighborhood with good schools, and paying off student loans.

The solution to these retirement planning shortcomings, says Kotlikoff, is a lifetime approach that attempts to smooth out the ups and downs of living standards by better accounting for swings in income, saving and spending throughout life. To help people do the math, Kotlikoff has come up with software package called ESPlanner that sells for $149. (While the math behind it is sophisticated, the user interface is a little clunky.)

ESPlanner includes some of the conventional calculations about saving and investing for long-term spending goals. But instead of assuming you’ll need a fixed income for life when you retire, the software attempts to forecast how your spending will go up — and down — after you stop earning a paycheck.

The effect, for some people, is to reduce the size of the nest egg that a “fixed-income-for life” retirement plan would require, said Kotlikoff.

“For a lot of people who are young and have mortgages and have college tuition to save for and a lot of mouths to feed what the program is saying is, ‘Don’t save a whole lot when you’re young, and save a lot right before retirement — which is what most people do,” he said.

Starting later in life means missing out on the powerful boost that compound returns can provide the early saver who amasses a nest egg that can grow for decades. But Kotlikoff says no matter when you start saving, you’ll be better off with a more realistic approach to the ups and downs of income and spending that inevitably crop up once you’re retired.

If your retirement investments have a bad year, you can postpone buying a new car. On the other hand, if your returns are above average, that may be the year to splurge on a cruise.

“Our dynamic programming model says people are going to adjust their spending based on how they do in the market every year,” he said.

Kotlikoff’s software virtually eliminates the risk you’ll outlive your savings target by assuming you’ll live to be 100. By doing so, the software also assumes you’ll spend your savings down to zero — which some conventional retirement plans don’t. That, along with better forecasting of changes in actual retirement spending, means some people can do a lot better than they think by saving less than conventional retirement calculators tell them to, he said.

Regardless of their planning process, several retirees told msnbc.com that managing spending and cutting expenses have had as much to do with maintaining a comfortable lifestyle as the effort they made on saving and maximizing their retirement income.

Earl Skovsgard, a retired policeman in Port St. Lucie, Fla., said in a recent e-mail that after paying off some big expenses, his retirement plan is working out pretty well. With two kids in college (most of which they’re paying on their own), a house and two cars paid for, the couple is living comfortably on his police pension and Social Security, supplemented by his wife’s part-time income.

“I am obviously not able to live at the French Riviera,” he said. “But if you eliminate some of the bigger-ticket items, like paying off the house, and buying an economy car that you can afford to drive, you can live well on a lot less than you think.”

Bill Murphy, who worked in data processing jobs for several large companies, decided after taking an early retirement in his mid-50s that he needed to keep working a little longer to make his retirement numbers add up. Now fully retired, he and his wife have “downsized” from the Detroit suburbs to a bigger house in Indianapolis. About a third of their current income comes from savings and the rest from pensions and Social Security. By withdrawing about 2 percent a year from his investments, he’s able to supplement his pension income and still watch his savings grow.

“I live a very comfortable life; I’m not extravagant,” he said. “I buy a new car once every 10 years. A couple of times a year we can go to both coasts and see the grandkids.”

Murphy says his retirement plan relies on a simple, one-page running financial analysis that he does once a month or so. He sets a spending limit on his credit cards; if he needs to go over that, he borrows from savings and then “pays it back” with the next interest payment from a bank CD.

“You match your expenses to your budget,” he said. “If I go over, it’s not the end of the world.”

Unfortunately, for some future retirees, no monthly savings goal is attainable. Don Voge, 42, works full time for a real estate title company in Minneapolis and figures he still has time to save for retirement. But a series of unexpected medical expenses forced him to refinance his home with a subprime mortgage that is now consuming 65 percent of his take-home pay and will soon rise to consume all of his income, he said.

“Retirement is something that’s going to happen 20 years or so, but I will likely lose my home in the next year,” he said. "So it really doesn’t matter thinking about retirement savings when I could be homeless in a matter of months.”